Auditors: ERP software woes could cost Idaho millions

Problems with a system for processing Medicaid payments could cost the state $2.8 million

Idaho may be out millions of dollars due to problems with a new system for processing Medicaid claims, according to a legislative auditor's report released this week.

Idaho's Department of Health and Welfare first contracted with Unisys in 2007 to develop the system, which handles claims submitted by health care providers who treat Medicaid patients. Last year, the Unisys unit involved was acquired by Molina Healthcare, which took over the project.

Once the system went live last June, "a series of design defects, provider enrollment issues, and a lack of coordination to resolve issues led to months of payment delays and inaccurate processing of claims," according to the report by the state's Office of Performance Evaluations.

"The transition to any new IT system requires sufficient planning and development and relies on clear communication among all involved parties, including end users," it adds. But Idaho's project was wracked by "unclear contract requirements, a lack of system readiness, and the absence of adequate end user participation throughout the enrollment and testing phases."

The system went live before certain milestones were met in areas such as testing, the auditors said.

The state ended up advancing some US$117 million to providers to cover the shortfalls while the claims issues were being resolved.

Now it is trying to recoup the money that was advanced, but so far has only received $49 million, and "more than $2 million is at risk of not being recouped at all," according to the report.

Molina's contract with the state is set to expire in November 2014. The contract's total value is $106 million, a sum that includes $1.3 million in monthly operational payments. The state has paid out $18.6 million on the contract as of March 8, the report said. But it is holding off paying about $9 million in invoices Molina submitted for the period covering last June to December, while determining "what services have been rendered and what services should receive payment," the auditors said.

The auditors made a number of recommendations to Molina and the state. They told Molina to improve its system performance monitoring and the way it measures the success of fixes, among other things.

Future contracts should have more specific project milestones and requirements, the auditor's report added.

Molina "generally agrees with the information provided, conclusions derived and recommendations specified," chief operating officer Terry Bayer said in a letter to the auditors. However, the company takes issue with a statement attributed to health care providers that the system Molina implemented was not suited for processing Medicaid claims, he added.

The system was indeed the same one designed and built by Unisys, based on off-the-shelf software, and was not changed by Molina, he said. The software was customized to meet Idaho's needs but that work was done by Unisys, according to Bayer. "The system was designed to process Medicaid claims."

Given the mistakes made, Idaho's project was practically doomed to have issues, according to one observer.

For one, testing is "so significant" to a project, said Michael Krigsman, CEO of Asuret, a consulting firm that helps companies ensure their IT projects are successful.

It's not as if a system needs to be completely bug-free, but "going live shouldn't require magic, it should yield predictable results. You should know where there are going to be problems," he said.

Moreover, systems like Idaho's are "very large and very complex and there's been a high incidence of problems implementing these around the country," Krigsman added.

And sometimes the problems lead to court. Earlier this month, Minnesota's Department of Human Services announced it would pay ACS $7.25 million to settle a lawsuit the systems integrator brought over the development of HealthMatch, a system for determining a person's eligibility for health care.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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